Many Australian businesses use contractual restraints of trade to protect confidential information and customer relationships. In this update we answer frequently asked questions about the future of restraints of trade in Australia, and consider options available to companies in the event that some types of restraints are no longer available.

Are restraints of trade still allowed?  

Yes – in the sense that the rules that have applied for years still apply for the moment.

Restraints of trade can form part of an employment arrangement (usually in the employment contract or a deed) and sale of business agreements and will be valid and enforceable in certain situations.

There are a fairly complicated set of both rules and principles that Courts apply in determining whether a restraint will be valid, and warranting remedy, where it has been or might be breached. The basic rule is that a restraint will be unenforceable unless there are special circumstances where a restraint protects a legitimate interest recognised by law. This interest must be recognised by the law and deemed reasonable by the Court both as between those who agreed to it, and taking into account the public interest.

Generally, Courts take a more permissive approach to sale of business restraints (which typically restrain the vendor from accepting business from former clients of the business sold for a period of time). The idea is that sale of business restraints are a public good because they benefit trade. Courts typically need much more convincing that a restraint in an employment agreement is enforceable.

When is a restraint reasonable and enforceable?

This depends on the particular circumstances. A Court will consider the scope of the restraint (the activities – such as not competing or poaching staff), how long the restraint applies, and its geographical area.

For more detail, click here to receive a copy of my article in the Australian Business Law Journal.

Are employment restraints about to be banned in Australia?

Short answer is no, not yet, but their future looks uncertain.

Businesses that use restraints of trade to protect confidential information going to competitors when employees leave, or purchasers acquiring a business who want to protect goodwill will be keen to understand the future of restraints of trade in Australia. The Australian Competition and Consumer Commission (ACCC) is presently reviewing whether restraints will be banned in Australia following a referral from the Federal Government.

We’ve set out key information about the state of play below. If you see something important and need more insight, speak to any of our partners. We have had deep involvement in many of the most contentious and high stakes cases decided in Australia and have broad advisory expertise in this area.

Are there many types of restraint and which are being reviewed?

Yes, there are many different types of restraint. They include:

  • Non-competition restraints which forbid working for a particular company or in a particular industry.
  • Non-poaching restraints which forbid soliciting or encouraging staff or clients to leave one organisation and join another.
  • Sale of business restraints which are typically a form of non-competition restraint given by a vendor to the purchaser of a business promising not to set up in competition and take clients or staff away.

We understand that all of these types of restraints are under review.

If we were to speculate, what changes will the Government make?

It depends much on what recommendations the ACCC provides the Government with, and then, of course, whether the Government has the numbers in Parliament to implement any recommendations it accepts.

Judging by what has occurred in other countries, most notably the United Kingdom and the United States of America (who Australian politicians commonly look to for ideas), consideration will be given to:

  • banning non-competition restraints contained in employment contracts;
  • limiting non-solicitation of client or staff restraints to a short period of time, say three months maximum; and
  • only permitting enforcement of a restraint where there is specific and separate payment for the period the restraint operates.

It is likely that sale of business restraints will be left alone or subject to additional criteria. We do not anticipate them being banned altogether.

Restraints of trade have been in place for hundreds of years. Why is the Government reviewing them now?

The catalyst for the review in Australia was a 2023 decision by the Federal Trade Commission (FTC) in the United States of America (similar to Australia’s ACCC which enforces competition laws) to issue a rule that all employment non-compete agreements (but not sale of business agreements) be banned, and even existing non-compete agreements be rescinded.

Although this FTC rule is not in effect whilst consultation about the proposal is occurring, the proposed change has unleashed quite the energetic backlash with more than 11,000 submissions being filed with the FTC about the proposals, with plenty of media making the case both for and against restraints. This is mostly due to US legislative activity expanding to impose restrictions on confidentiality and non-disparagement agreements following a separate decision from the National Labour Relations Board which found an increase in corporate suppression of misconduct and ill-treatment of shareholders, consumers and employees.

Interestingly, other employment restrictions including non-disclosure and non-solicitation agreements are exempt from the ban. The affected ability for employers to include confidentiality and non-disparagement clauses in separate agreements has been proposed in conjunction with the ban on non-compete clauses on the basis that these provisions provide an unfair method of competition. In the past, employees have been found to be best positioned to reveal employer misconduct as a result of their access to private, in-house information. This has in turn, attributed to a growing concern for employer abuse in the implementation of strategic confidentiality provisions and contractual clauses aimed at preventing an employee from exercising workplace rights and disclosing misconduct and wrongdoing.  

The criticisms of the FTC proposal are many and varied, including that:

  • The FTC does not take into account the many positive reasons for non-compete agreements, such as promoting innovation and giving companies a better chance to protect confidential information;
  • The FTC does not have congressional authority to make the rule banning non-competes that it proposes – this issue will be determined through litigation in 2023 and 2024; and
  • The reasons given by the FTC for banning non-competes lack substance. For example, the FTC cites the overuse of non-competes to restrict the mobility of low-earning employees, but does not explain why senior employees who have confidential and commercially sensitive information and move from a company to a direct competitor should not be subject to such restraints.

A number of States in the U.S. including California, North Dakota, Oklahoma, and Minnesota have now proposed State legislation to ban non-competes. Other States in the U.S. including Washington, Oregon, Nevada, Colorado, Illinois, Maine, Massachusetts, Rhode Island, Maryland, Virginia, and the District of Columbia have enacted legislation which is restraint friendly or unfriendly. You can find a State-by-State comparison prepared by our United States colleagues here.

The UK government appears to have followed suit shortly after the FTC’s announcement in proposing a statutory limit on the length of non-compete clauses of three months. The UK’s position aims to boost flexibility in the labour market and unleash greater competition and innovation. It is unclear from the UK’s proposal how this is to affect current in-place non-compete clauses.

In the case of Europe, no major jurisdictions have banned non-competes completely. They remain enforceable, given the commonality for employers to opt to embed non-compete clauses in employment agreements of essential employees. Many jurisdictions have a limit of 12 months on non-compete periods, requiring some non-compete periods to be paid fully or partly as is the case in France, Spain, Italy, Belgium, Denmark, Poland, Norway, Portugal, and Germany.

There is specific legislation in New South Wales that helps companies enforce restraints. Will that be changed?

We can only speculate at this point. If the Federal Government changes the law concerning restraints (for example, by placing a strict cap on the duration of employment restraints), it is likely the change in law will apply uniformly across the country, which will alter the position in New South Wales.

We are common users of restraints of trade in our business. What can we do now to put ourselves in a good position in case employment restraints are not available in the future?

Restraints are very common in some industries and professions. In the only Australian study examining the prevalence of restraints, Chia and Ramsay (2016, Australian Journal of Labour Law) found that restraints are most commonly used in financial services, professional services, technology, real estate, recruitment and in wholesale and consumer products businesses.

Although a good restraint of trade can offer important benefits to a business if it is well drafted and used for the right reasons, it is important to bear in mind that there are other means to protect confidential information. Sections 182 and 183 of the Corporations Act 2001 (Cth) prohibit directors and employees improperly misusing information obtained through their employment. Further, equitable rules regarding the misuse of confidential information, agreed contractual provisions, legislation protected trade secrets and common law protected intellectual property all ensure the security of privileged information.

The issue is that none of the means described above offer the same protection that a good restraint of trade does. For example, assuming a valid restraint has been agreed upon, a top salesperson who leaves to join a competitor can be restrained for a reasonable period to (a) enable the former employer to replace them, and (b) provide a replacement salesperson with a chance to meet clients and form customer connections. Absent a restraint, there are no strong legal protections that deal with this kind of situation.

In terms of what can be done to protect business assets, such as confidential information or critical customer connections in the face of a potential ban on restraints, we can take some guidance from what companies have done in some U.S. States, such as California, where restraints were banned years ago. Over time, a number of legal and economic instruments have been developed and deployed including:

  • Use of choice-of-forum clauses (where there are differences between States) that may enable the law of a different forum to regulate the contract;
  • Stronger drafting of confidential information protection contained in the employment contract or Non-Disclosure Agreement clauses (which can be used throughout the employment not just at the start);
  • In industries where this solution is appropriate, invention assignment agreements (typically used in technology companies and universities) where the employee agrees in advance that any inventions developed in the course of the employment belong to the employer;
  • Use of deferred compensation mechanisms to encourage employees to stay with a firm or to leave on terms which protect confidential information and customer relationships; and
  • Increased use of legislation protecting trade secrets and confidential information.

Other novel solutions also exist in particular industries and professions.

Is there merit in the criticism of restraints of trade, that they suppress wages and trap employees in jobs they don’t like?

This is a contentious topic, and there is no straightforward answer. Much depends on the stance taken on some philosophical issues such as whether employees should ever be in a situation where they cannot freely move around in a labour market and pursue their own best interests.

If it is accepted that there is a trade-off to be struck between labour mobility and the protection of company interests, such as confidential and commercially sensitive information or investment in staff and clients, the issue is where the appropriate trade-off should be.

Various overseas studies have looked closely at this issue from different perspectives include a macro whole of economy perspective, a business level perspective and an individual employee perspective. For example:

  • Ronald Gilson from Columbia Law School emphasised that the success of Silicon Valley in California is in large part attributable to the State ban on restraints. Knowledge spillovers between firms, so the argument goes, allow ideas to spread to where they are most likely to be commercialised – which accelerates innovation and is good for the economy and society.
  • By analysing a large volume of patent and other data, Agrawal, Cockburn and McHale (2006, Journal of Economic Geography) noted that it is social ties between people that results in idea and information flows. These researchers found that even after an inventor had moved companies or geographies, knowledge flow at the old location was 50% higher than when they had lived and worked there. This indicates that personal relationships endure over time, space and organisational boundaries. These researchers would not consider restraints a major variable impacting idea and information flows.
  • In a thorough and long paper, Posner, George Triantis and Alexander Triantis (2004, Olin Working Paper No. 137, University of Chicago Law & Economics) considered the issue from an economic efficiency perspective (that is, what is the correct balance point between labour mobility and employer investment in human capital), and concluded that the choice and drafting of a restraint can deal with these tensions, although there are economic incentives for both contracting parties to agree to excessively broad restraints upfront which can be a problem if they cannot be renegotiated at a later date.
  • Arup, Dent, Howe and Van Caenegem (2013, University of New South Wales Law Journal) considered the impact of legal practice (that is, how the law works in practice) upon the enforceability of restraints of trade, and found that when an employee leaves and hard bargaining occurs under circumstances of uncertainty concerning whether the restraint will be enforced, often the former employee is at a financial and expertise disadvantage unless the new employer is willing to become involved and to provide financial and legal support.

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When an ex-employee goes to a competitor or starts poaching clients or staff, employers often look to a restraint of trade clause to protect key business assets such as client relationships or company confidential information.

Often a quick decision needs to be made: apply to the Court to stop the ex-employee, or wait and sue for breach of contract damages at some later time. Wrapped up in this decision is the important issue of prospects of success – an employer will want to know there is a good chance of a successful outcome.

Whilst there is a general perception that restraints of trade are difficult to enforce (some lawyers even hold the blanket view that they are never enforceable) the only empirical study of Australian court judgments (Chia and Ramsay, 2016), which looked at all restraint of trade cases that went to final court determination in the period 1989 to 2012, found that the outcome across all cases in Australia in that period was:

  • The Court enforced the restraint 46.2% of the time
  • The Court found the restraint valid 17.2% of the time, but did not make enforcement orders (usually because the Court found no breach of the restraint or the employer suffered no damage)
  • The Court found the restraint invalid 36.5% of the time

The State/Territory breakdown found that NSW had the highest enforcement success rate (56.1%) whilst Victoria had an enforcement success rate of 30.7% and a finding that a restraint was valid (but not enforced) of a further 15%, meaning that the Court ruled the restraint invalid in 53% of cases.

Enforcing restraints of trade
Enforcement of restraints of trade in New South Wales and Victoria

There are at least a couple of reasons why NSW has a higher enforcement rate than Victoria. First, there is specific legislation in place that empowers a court to construe and read down a restraint that is excessive to reduce its operation to that of a reasonable protection, so long as that protection is within the confines of the restraint agreed between the parties. There is some qualitative evidence (Arup et al., 2013) to suggest that NSW is being nominated as the jurisdiction governing the contract to take advantage of this legislation. Second, NSW is a bigger State than Victoria with more employees, and the financial services and insurance industries, which are over-represented in restraint cases, are larger in NSW and hence generate more litigation.

I suspect these numbers – Australia wide and State by State – show odds of success that are much higher than is the general perception.  These aggregate numbers also leave out successful settlement negotiations prior to trial – it is not uncommon to agree a fresh restraint by consent, or some other compromise, rather than proceeding to final hearing.

The best decisions, including whether to start a legal action or not, are made by combining human expertise, experience and instinct, and objective data. The human experience allows us to weigh complex trade-offs and risks in pursuit of an objective. The objective data helps us to make decisions free of biases, many of which are subconscious.

Of course, every case is different and success in any individual matter has many essential ingredients. This aggregate data is useful in that it shows that an ex-employee’s restraint can be an effective tool to protect business assets. It is always a matter of ensuring that the essential ingredients, covered in other blog posts are present.

An enforceable restraint of trade can be a key business asset, giving an employer time to recover when a senior employee has left the business for a competitor. Like a good insurance policy, it’s a big relief to have it when you need it.

Australian law regarding restraints of trade has its history in 19th Century England and the prevailing concerns of that time.  Of course the law has developed incrementally since then. However, by and large, an employee restraint protects certain interests within defined geographical boundaries such as a city, state or country.  This made sense in a bricks and mortar world of commerce, but how can employers protect their interests in the modern digital economy?

We have worked with a range of clients to protect their interests across borders. Novel thinking is required to draft employment restraints so that they are effective within the established legal framework.  Our Australian Partners have litigated hundreds of restraint of trade cases and have developed a deep understanding of the issues and what it takes to win.  We share some thoughts below:

1. Ensure restraints protect the right cyber micro-markets

Cyber-markets can be broken down into many possible divisions: by country location, product or service, individual seller/retailer website, personal characteristics of the consumer (age, gender, occupation, hobbies) among other things. What this means is there are sections within any market which a departing employee may lawfully target which will not affect an employer’s current business.  Say, for example, an employer operates an online gambling business for rugby and AFL which serves clients in Australian capital cities but does not offer services for online horse racing in the UK.  A departing employee might be able to set up a competing website, also operating geographically from Australia, to offer online gambling in UK horse racing. The cyber micro-markets are different, so the two companies are not competing in that market.  But there is room for a restraint to work in areas of overlap subject to the terms of the restraint covering the correct cyber micro-markets.

2. Confining an employer’s cyber-trade interest to its client list

Where an employer provides a range of services in a cyber micro-market, the most efficient and clear way to protect its interests – for example, the legitimate interest of client connections, may be naming particular clients in a market, along with other appropriate terms.  This type of drafting can be effective to protect relationships built with particular clients situated within defined boundaries.

3. Enforcing cyber-market restraints where an employee engages in cyber-trading within the boundaries of an enforceable geographic restraint

Essentially, this means that an employer who reasonably restrains employees by geographical restraints is to be entitled to have this capture cyber-business within the geographical restraint.  For example, an employer can protect its interest in client connections regarding their telemedicine counselling services provided to public and private hospitals in, say, Sydney and Melbourne against former employees providing competing services to customers in these locations for a certain period of time, but would not be entitled to restrain a former employee from providing the same services to patients in aged-care homes in Perth, Adelaide or the United States.  A restraint will be effective so long as it is well drafted and ensures that providing services to clients through the internet within this geographic boundary is prohibited.

The above framework for drafting restraints supports the following public policy benefits:

  • ensuring a level of trade and (not unfair) competition while offering reasonable protection of an employer’s legitimate interests; and
  • allowing markets to grow and prosper for the benefit of consumers.

Keep enforcement front of mind where cross-border litigation is a possibility

 A cyber-restraint, like the internet itself, is a global construct.  But courts are country and state based and their jurisdiction is usually limited by geography.  That made sense when most trade was local but can be problematic when trying to enforce a restraint across borders.

A 2017 decision of the Western Australia Supreme Court provides an example.  Naiad, a U.S. employer sought an interlocutory injunction to restrain a defecting employee from operating a competing business in Western Australia. After grappling with the applicable law and jurisdiction, the Court concluded that the reasonableness of the restraint was governed by US (Connecticut) legal principles (given particular terms of the contract) but the grant of an injunction was governed by Western Australian law.

The situation is complicated because some countries (for example, Australia and the United Kingdom) have arrangements in place to recognise each other’s Court judgments and orders meaning that international litigation encounters less problems.  But this is not so as between many other countries.  The upshot is that it is important to consider how a restraint term will be enforced up front. Otherwise, there may be a right but no real way to achieve a remedy.


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An enforceable restraint of trade can be a key business asset. Some might think about it as an insurance policy. The capacity to preserve customer connections, protect confidential information and discourage key executives from setting up their own business or moving to a competitor can be critical to information rich businesses operating in a competitive market.

This is the case now more than ever given that the Supreme Court of Victoria’s decision in Just Group Limited v Peck [2016] VSC 614 (later affirmed on appeal) has arguably raised the bar for correctly drafting an effective restraint.

As we pointed out in our second blog piece on post-employment protections, ensuring the currency of your restraint provisions is an important exercise in risk management.

This success can be attributed to the practice of regularly revisiting the questions of which key executives or employees should be subject to restraints, and how those restraints should operate. The yearly promotion, pay rise or management re-shuffle cycles are perfect opportunities to update restraint provisions. Often, this is when operational changes (such as the make-up of roles) become effective, so restraints can be tweaked to align with these changes. A promotion or pay rise can be tied to a new contract or restraint provision. Instead of adopting a one-size-fits-all approach when an employee first joins the business, employers can increase the likelihood that a restraint will be enforceable by showing it was the subject of specific negotiation during the employment.

Experience in this area reveals one key distinction which separates cases where restraints are successfully upheld and those where compromise outcomes are achieved. In successful cases, typically, the restraint provision has been drafted neatly around the key protectable interests. When seeking to enforce a restraint, an employer will be required to show there is a protectable interest capable of supporting the restraint. This is the first limb of the test for enforceability. The scope, duration and geographical operation of the restraint are logically tied to the protectable interest (see our map below). An employer will need to make out each of these elements to meet the second limb of the test.

Post-Employment Protections Legal Dimension – Map

If the restraint then needs to later be relied upon down the track, the employer has the benefit of a provision which protects a current business asset (e.g. key connections with important customers or suppliers who the employee is in contact with) this is likely to be enforceable in court. If the opportunity to update a restraint has been missed, it may be necessary to try to force fit the facts into a restraint that might have been drafted years earlier in a very different business context – for example, when the employee was performing a different role. This can increase the degree of difficulty when enforcing a restraint.

Although courts will give employers some latitude – because the reasonableness of a restraint is judged at the time it was entered into – that latitude is limited. Regular housekeeping means that it won’t be necessary to call on this latitude because the restraint is fit for its purpose, and enforcement proceedings can be approached with confidence.

Doing this work inevitably pays dividends over the long term. Preparing an effective restraint is similar in concept to buying an insurance policy. You hope you won’t have to call it in. But if you do need to call on it, you are very glad you have it. The past decision to do the work inevitably looks very wise.


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Recently a number of stoushes about the enforcement of post-employment restraints of trade – including one that captivated the legal industry for many months last year – have played out publicly.

Their high profile nature means it is timely for big business to re-evaluate their restraints of trade to make sure they are effective – emphasised by the fact we are seeing movement in many industries (including the legal industry) picking up pace as teams relocate as a result of mergers and the continued impact of globalisation.

Restraint of trade provisions are common in many employment contracts, but whether or not a business takes steps to hold an outgoing employee to account is a different question. This can be for a range of reasons – for example, not wanting to be the “bad guy”, or where the relationship has fractured to a point where culturally, both parties are happy to move on.

But more commonly, it comes down to the fact that when the rubber hits the road, a closer inspection of the applicable restraints shows that the business doesn’t have a good case to enforce the restraints or that – even if they are enforceable – they don’t give the business the protection it really needs.

There are 3 key strategies to increase the chances that your restraints are effective – keeping you out of court and off the front pages:
  1. tailor your restraints to your business and to the employee – the cases highlight that restraints should be designed carefully to reflect what is actually important to the business and the job of the particular employee. While there is a superficial attractiveness to broad restraints, you need to think about what aspects of the employee’s role justify restricting them in some way after they leave – the courts don’t often like boiler-plate or broad-brush provisions to which no thought has been given.
  2. don’t be blinded by love – we all know the feeling of meeting someone new, making a connection, and thinking about how great your lives will be together. We ignore the faults that stare our friends in the face – because we can’t possibly think of how the relationship would ever turn sour. When it comes to recruitment, that applies too. You should very carefully consider any employee’s request to delete or modify key aspects of the restraint provisions (including, for example, reducing restraint periods, or waiving restraints if certain things happen) – because we all know some relationships just don’t last.
  3. re-evaluate contracts during the employment relationship – you would expect productive and valuable employees to progress and succeed in your business. However, promotions – and particularly senior promotions – often mean the employee has increased access to confidential information/business strategies, key clients/customers and talented fellow employees. Consider promotions as a good opportunity to look carefully at whether the existing restraints are sufficient to protect the company’s interests – it might be worth issuing an updated contract with new restraints at that point.

All our tips on restraints can be found here, along with our map of Post-Employment Protections.


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When a key employee subject to an employment restraint leaves a business to join a competitor, fast decisions need to be made to protect client goodwill or guard against misuse of confidential information.

The more leverage an employer has against the former employee and his or her new employer, the better the prospects of negotiating a sensible solution quickly or, failing that, taking successful legal action. Continue Reading Leveraging employment restraints to protect business assets

An enforceable restraint of trade can be a key business asset. Or some might think about it as an insurance policy. The capacity to preserve customer connections, protect confidential information and discourage key executives from setting up their own business or moving to a competitor can be critical to information rich businesses operating in a competitive market.  As we pointed out in our second blog piece on post-employment protections, ensuring the currency of your restraint provisions is an important exercise in risk management.  Continue Reading The difference between winning and losing restraint litigation is often good housekeeping

Following on from our first blog on post-employment protections, we will now look at the different types of restraint, and work through a checklist of questions employers should ask themselves when drafting a restraint to make sure it’s the right fit. Continue Reading Drafting and litigating post-employment restraints – Tailoring your restraint to ensure the right fit

Drafting and enforcing post-employment restraints has a lot in common with good medicine. It is necessary to prescribe only the “minimum effective dose” – the amount of medication to produce the desired outcome with minimum side effects. Draft a post-employment restraint too narrowly, and it provides no remedy. Draft a restraint too broadly, and toxicity sets in – it won’t be enforceable.

In our series of post-employment protection blog pieces, we will tackle each of the main legal and commercial issues involved in drafting and litigating post-employment restraints and unpack our Post-Employment Protections Legal Dimension map. We will examine best practice approaches and the tactical issues that need to be thought through.

Continue Reading Drafting and litigating post-employment restraints – Prescribing the “minimum effective dose”